September 2005: A new form of airline operations is taking shape in Russia with five carriers putting their operating plans under the control of a single management company, AiRUnion, that may end up in a merger - - but may not as well. Initially a December 2004 joining of KrasAir (ZXD), Domodedovo Air Enterprise (DOD), Omskavia (OMK) and regional carrier Sibaviatrans, the grouping later induced Samara Airlines to enlist. The name AiRUnion was announced in August at the Moscow Aerospace Show MAKS-2005, said Deputy Commercial Director Alexey Marchukov. It is to be the joint brand and control the airlines' commercial direction, including route planning, while the carriers focus on operations. An eventual merger is possible but not inevitable, Marchukov said. Heading the entity is AiRUnion President Alexander Abramovich. The company recently signed up for Lufthansa (DLH) Systems' (LHS) O&D-based ProfitLine/Yield revenue management system. (LHS) will work closely with Moscow-based Transport Automation Information Systems, a subsidiary of Ultitek, to implement the solution.

Together the carriers serve more than 5.5 million passengers annually.

November 2005: AiRUnion, the alliance of Russian airlines under a single management company, wants to move toward a full merger in 2006, an official said in Moscow. Members of the group are Krasair (ZXD), Domodedovo Airlines (DOD), Omskavia (OMK), Samara Airlines (SMR) and Sibaviatrans. Should the combination take place, the resulting carrier will surpass Sibir (SBR) to become the second-largest in Russia in terms of passengers. AiRUnion currently operates about 100 airplanes and has begun taking delivery of 10 737-200s, VP-Sales and Marketing/International Affairs Urs Herzig said. "Besides that, we will also be looking for new Russian airplanes like the Il-96 and Tu-204s and Tu-214s," he said. AiRUnion also operates four 767s and wants to build its fleet around Western airplanes. Next summer, it will open four routes to China. In addition to other destinations in the Far East, it is looking for flights to the USA. So far, no more information has been given about future passenger figures or financial details. The company possibly is interested in participating in the privatization of Malev (HGA) when the process is restarted; "Malev (HGA) would fit well with our needs," Herzig said.

737-3Y5 (25614, EI-DNH), (ILF) leased for AiRUnion operations. AiRUnion now has a Tu-154 (RA-85751), in full livery.

March 2006: Russian airlines reported a combined -RUB2.2 billion/-$78.7 million drop in net profit in 2005, according to a statement from the Federal Air Transport Agency cited by Russian media. Revenues increased +10% to RUB180 billion against a +20% lift in costs. The number of passengers grew +3.9% to 35.1 million and passenger revenues rose +3.4%.

October 2006: To strengthen its eastern operation, Austrian Airlines (AUL) plans to partner with Russian airline alliance AiRUnion (ZXD)/(DOD)/(OMK)/(SMR) beginning next summer. The wide-ranging agreement is expected to involve a multihub strategy with Vienna, Moscow Domodedovo (DME), Samara and Krasnoyarsk. Austrian (AUL) will move its Moscow operations to (DME) from Sheremeteyvo.

February 2007: AiRUnion President, Alexsandr Abramovich is expecting approval soon from the Russian government to complete the merger of the alliance's five constituent airlines. "We are in the final phase. The application is at the table of the President of Russia," Abramovich said. The tie-up would be the largest of its kind in Russia. Currently, AiRUnion is a combined marketing platform comprising KrasAir (ZXD), Domodedovo Airlines (DOD), Sibaviatrans, Samara Airlines (SMR), and Omskavia (OMK). It reported 2006 turnover of $1.15 billion, up +36% on 2005, and posted an +11% rise in passenger numbers to 3.7 million. It serves 67 destinations and claims a 12% market share, equal to that of S7 Airlines (SBR) and 12 points behind Aeroflot (ARO). Regarding his plans to acquire Malev Hungarian Airlines (HGA), Abramovich said it is a "good project that will not affect our newly established cooperation with Austrian Airlines (AUL)." Malev (HGA) is scheduled to join Oneworld in the spring, while (AUL) is a member of Star Alliance. "Malev (HGA) will be a cooperation in technology and maintenance. The carrier should stay as a independent entity," he said, adding, "I don't know yet how much I have to pay" for the Hungarian flag carrier. Those relationships are sufficient for AiRUnion at present, and the group does not consider joining one of the three global alliances a primary concern. "It is more important to have bilateral agreements, like with Austrian (AUL)," Abramovich revealed. Nevertheless, AiRUnion's strategic plan includes joining either Star or oneworld by 2015. Its short-term plan includes merging the five carriers' product into one by the end of 2008, with fleet renewal scheduled to conclude in 2010. "We are absolutely not satisfied with our current fleet, which has an average age of around 15 years," he said. The company is aiming for a mix of RRJ-95s, 737 Classics/NGs, 757s, 767s and Tu-204s. It currently operates 85 airplanes, including 17 leased Boeing jets. On the network front, AirUNion plans to hub at Moscow Domodedovo, and Krasnoyarsk for European, Asian and polar North American routes. Samara (SMR) will function as a secondary hub.

Austrian Airlines (AUL) Group took another step in its "Focus East" strategy, when it formally switched its Moscow operation to Domodedovo (DME) after 47 years at Sheremetyevo. "It was not an easy decision for us," Austrian (AUL) CCO, Josef Burger said. "With our new partner AiRUnion (ZXD)/(DOD)/(SMR)/(OMK), we have access to 41 destinations from (DME)." Austrian (AUL) formerly worked with Aeroflot (ARO), but severing ties with a SkyTeam carrier and aligning with AiRUnion makes sense for the airline, which serves Moscow thrice-daily and offers 39 weekly flights from Vienna to five Russian destinations. It will add a sixth this year, has rights to a seventh, and is interested in launching regional service in the country, Burger said. (AUL) Group takes more than 200,000 passengers to Russia each year, and expects its alliance with AiRUnion to produce 100,000 additional passengers. Meanwhile, AiRUnion is preparing to offer flights to Vienna from Samara and Krasnoyarsk.
(AUL) operates 566 weekly flights, including codeshare operations, to 45 Eastern and Central European destinations. The 2 million passengers it transports on those routes, constitute a quarter of its business. Among Western European carriers, it serves the second most destinations in Russia after Lufthansa (DLH)'s 10. Austrian is looking to send maintenance east as well. CFO, Thomas Kleibl said an F 70/F 100 "competence center" will be established in Bratislava, employing 50. "We are in talks with partners, like Honeywell, to bring in more maintenance work from third-party carriers," he said. (AUL) Group is one of the largest Fokker operators in Europe with nine F 70s and 12 F 100s. It will add two F 100s this year, and two in 2008.

May 2007: AiRUnion, the alliance of Russian carriers KrasAir (ZXD), Domodedovo Airlines (DOD), Sibaviatrans, Samara Airlines (SMR) and Omskavia (OMK), received final approval from the government and President Vladimir Putin to complete the merger, which should take place within six months and would be the biggest of its kind in Russia. Interfax reported that the government intends to hold at least 45% of the new company. AiRUnion has been operating as a marketing platform for the five airlines since 2004, and adopted the name in 2005. The carriers operate out of four Russian hubs and serve 68 domestic and international destinations. Revenue in 2006 came to $1.15 billion, up +36% from 2005, on an +11% year-over-year increase in passenger numbers to 3.7 million.

Later this year, the aviation industry is expecting to see a tender for narrowbodies from the newly constituted AirUnion company that brings together the interests of Domodedovo Airlines (DOD), KrasAir (ZXD), Omskavia (OMK), Samara Airlines (SMR), and Sibaviatrans, and is 45%-owned by the Russian government.

It is unclear how many airplanes it may order, but it carried nearly 4.9 million passengers last year and has ambitions to grow.

July 2007: Lufthansa (DLH) signed a Memo of Understanding (MOU) with Moscow Domodedovo (DME) operator East Line Group (ESL) to transfer its 61 weekly flights to the Russian capital to (DME) from Sheremetyevo (SVO), beginning with the summer 2008 schedule. (DLH) is the largest foreign airline at (SVO), but next year will head south to (DME), where it will become the airport's seventh Star Alliance (SAL)carrier. The move represents another blow for (SVO), which lost Austrian Airlines (AUL) the prior month.

In conjunction with the airport announcement, (DLH) announced a partnership with Russian airline conglomerate AiRUnion (ZXD)/(DOD)/(OMK)/(SMR) under which the companies would start next summer with "the reciprocal sale of tickets" and eventually move into codesharing and linked loyalty programs. AiRUnion (ZXD)/(DOD)/(OMK)/(SMR) struck a similar accord with Austrian (AUL), when (AUL) switched to (DME), which along with its new pact with (DLH) may signal the Russian entity's interest in joining Star (SAL). Alliance CEO, Jaan Albrecht said last December that the group was interested in recruiting a Russian member.

(DLH) will join Star (SAL) partners (AUL), Swiss International Air Lines (CSR), bmi (BMA), Spanair (SPP), Singapore Airlines (SIA), and Thai Airways (TII) at (DME). Its current Moscow operation comprises five-times-daily service to Frankfurt, thrice-daily flights to Munich, a daily to Dusseldorf, four-times-weekly flights to Hamburg and a weekly to Berlin that will increase to twice-weekly in September.

Domodedovo (DME) Director Business Development & International Relations, Daniel Burkard said that if (SAS) Scandinavian Airlines and (LOT) Polish Airlines - - the remaining Star carriers at (SVO) - - switch to (DME), "and if Star Alliance (SAL) wishes to do so, we can offer them a dedicated terminal. Our new Terminal 2 will go into operation by 2010." The facility will be designed to connect passengers within 25 minutes, he said, adding that (DME) has enough capacity to handle the additional (DLH) flights easily. While Aeroflot (ARO) and its SkyTeam (SKT) partners account for around 82% of (SVO)'s 12 million annual passengers, (DME) is handling approximately 16 million per year and is expecting a +20% annual increase, Burkard said.

AiRUnion (ZXD)/(DOD)/OMK)/(SMR) is planning to apply for (IATA) (ITA) Operational Safety Audit (IOSA) certification, once the merger of the five constituent carriers is complete. That is expected to occur in November. The companies won government approval two months ago. None of the five airlines - - KrasAir (ZXD), Domodedovo Airlines (DOD), Sibaviatrans, Samara Airlines (SMR), and Omskavia (OMK) - - is an (IATA) (ITA) member.

December 2007: The European Commission (EC) has contacted Hungarian authorities regarding the control and ownership of Malev Hungarian Airlines (HGA), the (EC) Directorate General for Energy & Transport confirmed. The (EC) is seeking reassurance that Malev (HGA) still fulfills all conditions required to be an (EU) carrier. Doubts regarding its status follow its privatization last spring. The Hungarian government sold a 99.95% stake in the airline to AirBridge, a Hungarian company affiliated with Russian carrier KrasAir (ZXD).
According to the press release issued by the legal firm that advised on the Malev (HGA) sale, "AirBridge is a holding company member of the Russian AiRUnion-Krasair Group (ZXD)/(DOD)/(OMK)/(SMR), which is considered to be the second largest Russian airline alliance after Aeroflot (ARO)." AiRUnion combines KrasAir (ZXD), Domodedovo Airlines (DOD), Omskavia (OMK), Samara Airlines (SMR), and Sibaviatrans. The Hungarian press commonly describes Malev (HGA) as a Russian-controlled or Russian-owned carrier. "The legislation is very clear. If a carrier is owned more than >49% by non-(EU) interests and is effectively controlled by non-(EU) interests, it is no longer a community carrier and it cannot benefit from the single European market," said Gilles Gantelet, deputy head of Unit F1 responsible for internal market, air transport agreements and multilateral relations. He acknowledged that certain companies are established specifically to conform to (EU) rules, but he would not conclude this is the case with Malev (HGA). "We are in touch with the Hungarian authorities on this issue," he said, noting it is the responsibility of national authorities to guarantee application of the law and make sure carriers it licenses are (EU)-owned and controlled. "Should the European Commission (EC) have doubts, we can make an inquiry and we can start an infringement procedure in the European Court of Justice against the respective government for failing to apply (EU) regulations."

Somewhat ironically, Malev (HGA) announced a five-year cooperation agreement with AiRUnion (ZXD)/(DOD)/(OMK)/(SMR), Sukhoi and Russia's Bank for Development and Foreign Economic Activities. The deal calls for "a considerable increase in the number of [Malev (HGA)'s] Russian routes besides retaining its existing direct Russian services" through both the addition of new services and codeshares with partner carriers. The airline added, "In the medium term, it is essential for Malev (HGA) to upgrade its regional fleet, exchanging its current CRJs and Fokkers with new, modern jets." It said it is "examining" acquisition of Sukhoi's Superjet 100.

February 2008: Malev Hungarian Airlines (HGA) will shift its entire Moscow operation to Domodedovo from Sheremetyevo from March 30. Malev (HGA) will adjust its timetable to fit with partner AiRUnion (ZXD)/(DOD)/(OMK)/(SMR)'s schedule.

March 2008: Technical problems will postpone delivery of the first Sukhoi Superjet indefinitely, the Russian manufacturer announced. First deliveries originally were slated to begin by late 2008. "The airplane is currently in the final testing stages and it will make its first flight within a month," Alexei Fyodorov, CEO of United Aircraft Building Corp, told "RIA Novosti." "Our specialists are working round the clock to meet our obligations to contractors." Recently, Superjet International CEO, Alessandro Franzoni told the SpeedNews Commercial Aviation Suppliers Conference in Los Angeles that the regional jet's first flight was "imminent." To date, the 78/98-seat airplane family has garnered 73 firm orders plus 46 options, the bulk of them from Russian customers. The company hopes to market some 700 airplanes priced at $25 to $28 million. Program suppliers include Honeywell (SGC), Parker, Thales (THL), and Goodrich (BFG). The SaM 146 engine is supplied by Powerjet, a joint venture between Snecma and NPO Saturn.

April 2008: AiRUnion (ZXD)/(DOD)/(SMR)/(OMK) and Sibaviatrans COO, Gustav Baldauf said it is making every effort to get its own Air Operators Certificate (AOC) by June. "We have finalized plans to increase productivity and efficiency. The final agreement and approval just depends now on the owners of AiRUnion, the Russian government, and [CEO] Boris and [President] Alexander Abramovich," he said. A decision is expected this month. One critical step is to stem losses at the five constituent airlines. "Our plans include creating a breakeven for 2008. We have to stop bleeding. Every change we make, creates immediate positive cash flow," Baldauf said.
He cited as an example the fact that an Il-62 requires four tons more fuel per 1 hour of flight than a 757, with each ton costing approximately $1,000. Increasing fuel efficiency will be a major component of AiRUnion's financial revival. It currently operates a mainly Russian-built fleet of 90 airplanes that does include four 757-200s, four 767-200s/-300s and six 737 Classics. It is continuing trying to balance its operation to account for both demand and efficiency. "From 29 Tu-154s, there are just 13 operating. We plan to increase this level to 20 airplanes," Baldauf said, admitting that some airplanes remain on the ground for lengthy periods. "We want to bring up annual flying hours of some airplanes from 1,000 to 4,500." By year end, the fleet should be down to 60, as the group phases out older Russian types and adds 737s and 767s. An ideal future fleet could include 20 long-haul and 40 single-aisle Western-built airplanes.

When AiRUnion secures its own (AOC), it will begin to merge "the good parts" from each of the five carriers, Baldauf said. "This includes Western airplane types, infrastructure or staff. Nevertheless, the present number of 7,000 [employees] could be cut down substantially. We may keep one (AOC) for a second carrier for feeder operations." Complexity should be reduced by downsizing the number of hubs from five to two, leaving Domodedovo (Domodedovo Airlines) (DOD) and Krasnoyarsk (KrasAir (ZXD)/Sibaviatrans).

The group currently holds a 12% domestic market share, which accounts for 90% of its business. It is ranked third behind S7 Airlines (SBR) and Aeroflot (ARO). "Domestic service, which sees up to a +15% annual passenger growth rate, is important for every Russian carrier," the COO said. He believes an 80%/20% domestic/international split would be ideal. The plan also includes a schedule to join the Star Alliance (SAL), where Lufthansa (DLH) and Austrian Airlines (AUL) are its mentors. "If we have our own (AOC), and have implemented (IATA) (ITA) Operational Safety Audit (IOSA) safety standards, etc, in about three years time AiRUnion (ZXD)/(DOD)/(OMK)/(SMR) would be ready to join the Star Alliance (SAL)," Baldauf revealed.

May 2008: Lufthansa Cargo (LUB), AiRUnion (ZXD)/(DOD)/(OMK)/(SMR) and Krasnoyarsk's Yemelyanova Airport signed a Memo of Understanding (MOU) establishing a strategic cooperation that will result in (LUB)'s shift from Astana, where it currently stops on flights to/from Asia (ATW). The airport and service companies operating at Yemelyanova promised to make necessary investments, including an upgrade of the CAT II instrument landing system scheduled be completed and certified by year end.

August 2008: Russian airline alliance AiRUnion (ZXD)/(DOD)/OMK)/(SMR) is facing significant financial troubles and having trouble paying its bills, to the point where aircraft at Moscow Domodedovo (DME), which controls fuel distribution, are not being fueled on time. "There are some open bills," a source close to the carrier confirmed, adding that discussions about the future of the five-carrier alliance are intensifying between the Russian government and AiRUnion, CEO, Boris Abramovich and President, Alexander Abramovich. "The company is transforming from an old to a new system, and the old system can no longer exist," the source said. More news is expected next week.

AiRUnion comprises KrasAir (ZXD), Domodedovo Airlines (DOD), Samara Airlines (SMR), Omskavia (OMK), and Sibaviatrans. Just a few months ago it was planning to operate under one Air Operator's Certificate (AOC) and join Star Alliance (SAL). The Abramovich brothers own AiRUnion's largest constituent, KrasAir (ZXD), which the source confirmed is carrying significant debt. Russian media have reported that AiRUnion is up to €675 million/$995.4 million in debt.

At (DME), several thousand passengers experienced hours of delays while AiRUnion airplanes waited to be refueled. The Russian government finally agreed to supply 3,600 tons of kerosene.

Operating a fleet largely composed of Russian-built airplanes along with several Boeing types, AiRUnion is Russia's third-largest carrier and transported 3.7 million passengers in 2007. It signed a Memo of Understanding (MOU) last year to develop a strategic partnership with Lufthansa (DLH).

September 2008: Aeroflot (ARO)'s board decided to open a branch in Krasnoyarsk, where it will base a Tu-154 and add up to seven airplanes in the fourth quarter. It said the decision was based on "KrasAir (ZXD)'s difficulties to continue its operations and to meet the considerable demand in this region." KrasAir (ZXD) is one of the largest constituents of the debt-ridden, five-airline AiRUnion (ZXD)/(DOD)/OMK)/(SMR) alliance, which recently suffered from operational difficulties and groundings and last week was promised 24,000 tonnes of fuel by the Russian government through September 14, according to press reports.

Russian alliance AiRUnion (ZXD)/(DOD)/(OMK)/(SMR), which is run jointly by the government; CEO, Boris Abramovich, and President, Alexander Abramovich, is facing significant financial troubles and requires an immediate restructuring, COO, Gustav Baldauf said. A plan to save the near-bankrupt alliance comprising KrasAir (ZXD), Domodedovo Airlines (DOD), Samara Airlines (SMR), Omskavia (OMK), and Sibaviatrans will be formulated by the state-owned Russian Technologies investment fund, which holds 51% of AiRUnion. One potential solution that has grained traction is the merger of the alliance with Atlant-Soyuz Airlines (AXX), which is controlled by the Moscow city government. "We hope to find a plan which is good for the Russian market. It is a positive sign that actions have been implemented. But time is running and a solution is needed urgently," Baldauf said. He revealed that AiRUnion's complexity has proven to be its undoing. "The problem within AiRUnion is not fuel prices alone. It is the complex system of this airline cluster on which the alliance is built." The operation started to decay three weeks ago, with delays and fuel shortages resulting from unpaid bills. A government pledge to provide fuel has failed to solve the company's myriad financial problems that include RUB1.53 billion/$60.4 million in back tax claims and a bankruptcy suit against KrasAir (ZXD), according to the "Vedomosti" business daily. That pressure also is being felt at Malev Hungarian Airlines (HGA), which was sold to KrasAir (ZXD) affiliate, AirBridge last year.

Recently, Baldauf revealed that just 40 of AiRUnion's approximately 100 airplanes are operating and that some Western-built planes will be transferred back to lessors. "We are just operating a trunk schedule with a few airplanes in order to transport stranded passengers and run a few routes," he said.

It is unclear if the AiRUnion brand will survive the restructuring. The future of its cooperation with Lufthansa (DLH) and Austrian Airlines (AUL) also is unknown. Just a few months ago, it was planning to operate under one Air Operators Certificate (AOC) and to join the Star Alliance (SAL). It currently is Russia's third-largest carrier. It transported 3.7 million passengers in 2007, and held a market share of 12%.

The Russian government confirmed that it plans to create a new state-owned airline company intended to rescue the cash-strapped AiRUnion alliance (ZXD)/(DOD)/(OMK)/(SMR). The holding company will rival Aeroflot (ARO) in size, and be controlled by the Russian Technologies investment fund, according to Russian press reports. "The crisis at AiRUnion is over," Deputy Finance Minister, Andrei Nedosekov told media. "The state understands that the crisis of one company could lead to the collapse of the whole sector. The state is ready to support the company and has the resources to do this."
Russian Technologies said it will take at least nine months to create the new company, which will comprise KrasAir (ZXD), GTK Russia, Kavminvodyavia, Orenburg Airlines (OMK), Saratov Airlines, Domodedovo Airlines (DOD), Samara Airlines (SMR), and Vladivostok Airlines. Russian officials patched together a deal whereby AiRUnion's assets will be folded into the new company, along with Atlant-Soyuz Airlines (AXX), which is controlled by the Moscow city government, and several regional carriers. It was not immediately clear how AiRUnion's debts, which Russian Technologies said amount to $800 million, would be paid off. Sources close to the alliance, said part of the debt is secured by stakes owned by AiRUnion CEO, Boris Abramovich and President, Alexander Abramovich.

The Russian government intended to replace AiRUnion with a state-owned grouping of nine airlines, but AiRUnion COO, Gustav Baldauf said that "we are still working on a concept for a follow-up company" and that decisions on how the replacement alliance would function "will take some time."

Talks with the government are on hold and Atlant-Soyuz Airlines (AXX), the Moscow-owned carrier that was supposed to take over AiRUnion's flights, still is awaiting certification to do so.

October 2008: KrasAir (ZXD) and Domodedovo Airlines (DOD), two of the five members of the defunct AiRUnion alliance, have been granted approval by Russian authorities to operate certain flights until October 31. The other three carriers - - Omskavia (OMK), Samara Airlines (SBR) and Sibaviatrans - - will shut down operations.

The Russian government is moving ahead with forging a state-owned airline alliance to replace defunct AiRUnion , with the first board meeting of the new nine-carrier grouping scheduled for November 11. The company will be 51% owned by Russian Technology Corp, a source close to the negotiations confirmed, with "Russia Airlines" (or some derivative thereof) reportedly the preferred name. RIA Novosti reported that the Moscow city government will hold the remaining 49%.

Russian Technology head, Sergei Chemezov told reporters that the new alliance "could announce its registration and establishment" at the November 11 meeting. Moscow Mayor, Yury Luzhkov said the carrier will be based in the capital. City-owned airline Atlant-Soyuz (AXX) will be a key constituent of the new group. KrasAir (ZXD), Domodedovo Airlines (DOD), and Rossiya (SDM) are other potential members.

The new alliance created and controlled by the state and Russian Technologies (RT) to replace AiRUnion will comprise 10 regional airlines, be registered as a public corporation and eventually be called something other than Russia Airlines (a working name), (RT) head Sergei Chemezov told journalists, "The Moscow Times" reported. Moscow Vnukovo will be the carrier's principal base, with the Moscow city government holding the remaining 49% of the new company. It also will have bases in St Petersburg, Krasnoyarsk, and Khabarovsk. According to Kommersant, the 10 carriers are Atlant-Soyuz (AXX), Rossiya (SDM), Kavminvodyavia (KMV), Orenburg Airlines (ORB), Saratov Airlines (SOV), Vladivostok Avia (VLK), Dalavia (KHV), and former AiRUnion members KrasAir (ZXD), Domodedovo Airlines (DOD), and Samara (SMR). Director General nominee, Vitaly Vantsev said the airlines will begin codesharing in the upcoming winter schedule. He also said Atlant-Soyuz (AXX) and Vnukovo are negotiating with the government on reimbursement of RUB2 billion/$74.3 million spent transporting AiRUnion passengers, "Kommersant" reported.

Director General nominee Vitaly Vantsev, a Vnukovo International Airport executive, told RIA that the company will operate a fleet of 150 airplanes and plans to buy up to 30 Sukhoi Superjet 100s.

December 2008: Russia's treasury is set to provide RUB30 billion/$1.08 billion in soft loans to the air transport industry to help it through the current credit squeeze. Last month, the government established a state-backed dedicated relief facility to finance the working capital needs of a few major airlines. According to sources, the five carriers that transport more than >1 million passengers per year, with at least half on scheduled flights, are eligible to receive funds. The recipients identified to date by First Deputy Prime Minister Igor Shuvalov are Aeroflot (ARO), newly formed Rosavia ((AXX)/(SDM)/(ZXD)), and Transaero (TRX), a private operator of Russia's largest long-haul fleet. KD avia (KGD) Director Business Development, Mikhail Baskov said that his airline also is on the list given its role in serving the Kaliningrad exclave. "We firmly count on receiving up to RUB4 billion at an affordable interest rate," he said.

Rosavia, the successor to the defunct KrasAir (ZXD)-led AiRUnion alliance, has applied for RUB5 billion to carry it through its formation and allow it to maintain operability and meet growth rate targets in 2009.

The government made a decision in principle to subsidize carriers that provide domestic air services to remote regions, with particular recipients still to be selected. At the same time, civil aviation agency, Rosaviatsiya plans to tighten supervision over airlines' financial and operational performance. "We'll request them to report results before each summer and winter season," Deputy Chief, Vladimir Chertok said. "If results worsen grossly, we'll consider suspending or annulling air licenses."

February 2009: Russia's Federal Anti-monopoly Service (FAS) is intent on abolishing overflight fees charged to foreign airlines, which traditionally benefit Aeroflot (ARO). (FAS) Director, Igor Artemyev told reporters that his agency has prepared a relevant draft decree to be submitted for government approval shortly. Since the late 1970s, foreign operators have been paying pro-rate charges for transiting airspace over Siberia on routes between Europe or North America and Asia. Under this practice, Aeroflot (ARO) receives substantial additional revenue, which industry experts estimate at $200 to $400 million per year. "We don't mean to harm Aeroflot (ARO) in any way, but that system of imposing feudal royalties is an absurdity and should be eliminated," Artemyev said.

Discussing the matter with Russian counterparts in 2005, European aviation authorities claimed that payments for rights to fly on trans-siberian routes cost (EU)-based carriers more than >€250 million annually. Founders of newly formed aviation holding, Rosavia also are lobbying against overflight charges, citing the advantage gained by Aeroflot (ARO), which Rosavia is designed to rival. The Transport Ministry, however, is opposed to scrapping the charges in the short term. Minister, Igor Levitin told reporters that the fees should remain in place at least until after 2014, when Russia will host the Winter Olympics in Sochi.

March 2009: Reports from Russian media sources say the new mega-airline called "Rosavia" won’t take flight until after the summer at the earliest. "Rosavia" is being cobbled together from a slew of bankrupt, ill-financed or otherwise unstable outfits from throughout Russia’s highly fragmented airline industry.

April 2009: Russian Technologies (RT), the state-owned controller of the newly established, Moscow Vnukovo-based "Russia Airlines" (or "Rosavia") plans to order 150 to 200 airplanes starting next year, (RT) head, Sergei Chemezov said, according to "Reuters." According to Chemezov, "Boeing (TBC) has promised to help us find credit in the USA. From next year, we would like to start buying airplanes . . . The most important question is where [we can] get the money."

February 2010: The Russian government announced plans to merge a series of smaller airlines, including St Petersburg-based Rossiya (SDM), into Aeroflot (ARO). Russian Transport Minister, Igor Levitin said the consolidation would lift (ARO)'s domestic market share to 30% to 35% from 15% to 20%, according to "RIA Novosti." Other carriers involved are Kavminvodyavia (KMV), Orenburg Airlines (ORB), Vladivostokavia (VLK), Saratov Airlines, and Sakhalin Airlines (SKH), according to "ITAR TASS." They originally were to be combined in a new state-owned carrier called Rosavia, plans for which now have been shelved.

Rossiya (SDM), Kavminvodyavia (KMV) and Orenburg Airlines (ORB), three of the six airlines scheduled to be combined with Aeroflot (ARO) under a Russian government plan announced this month, will be transitioned from state-owned enterprises into joint stock companies prior to the merger, "The Moscow Times" reported. The other three, Vladivostokavia (VLK), Saratov Airlines and Sakhalin Airlines (SKH), already are joint stock companies. Transport Minister, Igor Levitin said the stake sales will occur this year. He said the move is "compatible with the anti-monopoly regulations."